On the rationalizability of observed consumers' choices when preferences depend on budget sets: Comment

Abstract

In a recent article, Bilancini (J Econ 102:275-286, 2011) demonstrates that assuming either price-dependent preferences or preferences that depend on the choices of other individuals can render the theory of revealed preference effectively unusable. Some readers might be tempted to infer that economists had better avoid such assumptions. In this note, we argue against that conclusion in favor of a less categorical and more pragmatic approach. In several domains, we identify fundamental weaknesses in revealed preference theory and argue that in those domains, nontraditional assumptions about preferences significantly enhance our ability to explain and predict behavior. © 2012 Springer-Verlag Wien.